News: 'India to see steady 9% annual growth'

(DNA 07/05/2007) Mumbai - India's economy may well have settled comfortably into a high-growth zone where, going forward, 9%-a-year growth rates could be the norm. In fact, it is beginning to look a lot like a force that is well and truly arrived, much like China. That is the estimation of UBS chief Asia economist Jonathan Anderson, one of the foremost economic authorities in the region. "The Indian economy doesn't just have the potential to eventually turn into a 'China story' under the right conditions: it looks an awful lot like China already," said Anderson. "If we just focus on macro fundamentals, there's no reason why India shouldn't be growing at 8% to 9% today, regardless of the state of the bureaucracy and the infrastructure." Anderson said that for the past eight quarters, the Indian economy had been growing in real terms at a steady 9% year-on-year- or 11% year-on-year if non-farm GDP is considered. And this has come about without "any obvious sign of massive stress in the system". There hasn't been any "collapse in profits" as happened in China in the 1990s or any untenable increases in inventories. Even the current account deficit is basically unchanged from a year ago. "Sure, asset markets are hot, but they are arguably far from an outright bubble." Despite all these positive factors, Anderson said, the prevailing view appears to be that it will be a "Herculean challenge" to get India to a sustainable 7.5% growth rate. But in fact, when one looks at the medium- and long-term growth potential, it is becoming clear that India's recent growth spurt may be more than just a spurt, and that the economy is well past the sustainable 7.5% real growth mark. The two fundamental economic characteristics of high-growth Asian 'tiger' economies, Anderson said, are savings and exports. "You need domestic saving rates of 30% to 35% to generate the investment needed to grow at 8% to 9% year-on-year. And you need a strong commitment to globalisation and export growth in order to pay for the inevitable commodity and capital goods import needs, and provide an outlet for rapid labour-intensive employment growth in order to move excess farm labour out of the countryside." And how has India fared with its savings and exports? Rather well in recent times, in Anderson's reckoning. About 20 years ago, India's national saving rate was well under 20% of GDP, which was more characteristic of a "Latin American-style laggard" than an Asian tiger. Yet, over the past decade, India's saving ratio has broken through beyond 30% of GDP - to reach nearly 35% last year. That trend, Anderson said, has allowed India's domestic investment rate to rise to 38% of GDP. "This is not just a strong performance by traditional East Asian standards: it puts India squarely in China territory." And although India lags China in terms of manufacturing export dynamism, when the services sector - where the Indian economy has had well-documented successes - is also factored in, India is not only keeping pace, it's running ahead of China's historical path, Anderson said. All this is further validated when one considers another aspect of growth: the rise of global purchasing power. When the annualised rate of GDP growth of Asian economies in nominal US dollar terms is plotted - to see how fast these economies have been gaining purchasing power in dollar terms - India's growth (at a little over 12% dollar gains ever year since 2000) is nearly as good as China's (at 14%). All this, to Anderson, said the Indian economy, long seen as merely a bridesmaid whose time might come some day, is in fact ready to step up and be the blooming bride.